6.  On 16 August 2000 the applicant company purchased goods from another company (“the supplier”).
7.  Both companies were registered under the Value Added Tax Act 1999 (“the VAT Act”) and the transaction constituted a taxable supply under the said Act.
8.  The total cost of the received supply was 21,660 Bulgarian levs (BGN) (11,107 euros (EUR)), of which BGN 18,050 (EUR 9,256) was the value of the goods and BGN 3,610 (EUR 1,851) was value-added tax (“VAT”).
9.  The supplier issued invoice no. 12/16.08.2000 to the applicant company, which the latter paid in full, including the VAT of BGN 3,610 (EUR 1,851).
10.  The applicant company recorded the purchase in its accounting records for the month of August 2000 and filed its VAT return for that period by 15 September 2000.
11.  The supplier, on the other hand, did not record the sale in its accounting records for the month of August 2000, but for October 2000, and reported it in its VAT return for the latter period, which it filed on 14 November 2000.
12.  On an unspecified date the tax authorities conducted a VAT audit of the applicant company covering the period from 10 February to 31 December 2000. In the course of the inspection a cross-check of the supplier was conducted in order to ascertain whether it had properly reported and recorded the supply in its accounting records. As a result, the above reporting discrepancy was discovered (see paragraphs 10 and 11 above).
13.  On 31 January 2001 the “Yug” Tax Office of the Plovdiv Territorial Tax Directorate issued the applicant company with a tax assessment. It refused the applicant company the right to deduct the VAT it had paid to its supplier (“the input VAT”), amounting to BGN 3,610 (EUR 1,851), because the supplier had entered the supply in its accounting records for the month of October 2000 and had reported it for that period rather than for August 2000. The Territorial Tax Directorate therefore considered that no VAT had been “charged” on the supply in the August 2000 tax period, that the applicant company could not therefore deduct the amount it had paid to its supplier as VAT and, furthermore, that it was liable to pay the VAT on the received supply a second time. Accordingly, it ordered the applicant company to pay the VAT in the amount of BGN 3,610 (EUR 1,851) into the State budget, together with interest of BGN 200.24 (EUR 102) for the period from 15 September 2000 to 31 January 2001.
14.  The applicant company appealed against the tax assessment on 20 February 2001.
15.  In a decision of 26 February 2001 the Plovdiv Regional Tax Directorate dismissed the applicant company’s appeal and upheld the tax assessment in its entirety. It recognised that the applicant company had fully complied with its VAT reporting obligations in respect of the received supply, but found that the supplier had failed to enter its invoice in its own accounting records on the date it had been issued, 16 August 2000, and had not reported its VAT-taxable supply for the month of August 2000 as it should have done. It therefore concluded that no VAT had been “charged” on the supply in question and that the applicant company was accordingly not entitled to deduct the input VAT, in spite of the fact that the supplier had subsequently reported the supply for the month of October 2000.
16.  The applicant company appealed against the decision of the Regional Tax Directorate on 19 March 2001, arguing that it could not be denied the right to deduct the input VAT solely because of its supplier’s belated compliance with its VAT reporting obligations. The applicant company also claimed that the supplier’s right to deduct the VAT it had paid to its own supplier had been recognised by its tax office, while the applicant company was being denied that right. In its submissions the applicant company relied, inter alia, on Article 1 of Protocol No. 1 to the Convention.
17.  In a judgment of 21 September 2001 the Plovdiv Regional Court dismissed the applicant company’s appeal and upheld the decisions of the tax directorates. It stated as follows:
“The Court finds that the ... objection of the [applicant company] is ... unsubstantiated. In particular, [the applicant company objected that] it had been the compliant party, while the supplier had not complied with its obligations. The right to ... [deduct the input VAT] arises for the recipient of a [taxable] supply only if the supplier has fulfilled the conditions under section 64 in conjunction with section 55 of the VAT Act. The Act does not differentiate between the parties to a supply transaction as regards compliance; the court cannot therefore introduce such an element into this judgment. ”
18.  On 26 October 2001 the applicant company appealed to the Supreme Administrative Court.
19.  In a final judgment of 24 October 2002 the Supreme Administrative Court concurred with the findings and conclusions of the tax authorities and stated the following:
“... In this case the non-compliance of the supplier impacts unfavourably on the recipient ..., because the right to recover the [input VAT] does not arise for [the latter] and it does not matter that the recipient of the [taxable] supply [acted] in good faith and [was] compliant..., as this is irrelevant for the [purposes of] taxation. ... There [is] also [no] ... violation of ... Article 1 of Protocol No. 1, because the refusal to recognise the claimant’s right to [deduct the input VAT] under section 64 (2) of the VAT Act did not violate its property rights, due [to the fact that] the recognition of its substantive right [to deduct] under section 64 of the VAT Act is conditional on the actions of its supplier and [the latter’s] discharge [of its obligations] vis-à-vis [the State] budget. ...”